In the near-term, making massive amounts of liar’s losses loans creates a mathematical guarantee of producing record (albeit fictional) accounting income. (As long as the bubble inflates, the liar’s loans can be refinanced – creating additional fictional income and delaying (but increasing) the eventual loss. The industry saying for this during the S&L debacle was: “a rolling loan gathers no loss.”
Mish’s Global Economic Trend Analysis: Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman’s Bad Assets by Senior Regulator
You see, this is what hyperinflation is all about. It is about not only demand collapsing down the pyramid, but the system itself also collapses down a pyramid, from modern monetary theory on down to Austrian monetary theory. What seems antiquated in today’s digital age still lies dormant beneath the surface, just waiting to emerge with a vengeance.
If this system is illusory, how has it prospered over centuries? The answer is that for many years governments ran surpluses and at times had no debt at all. Growth was robust providing support to the tax base. Governments had the trust of bond markets to rollover maturing obligations. With some fits and starts, tangible wealth creation outpaced debt creation. And until recently paper money was backed by gold at fixed rates of exchange. Today all four legs of the table – surpluses, growth, trust and gold are gone or damaged.
Los Angeles will run out of cash on May 5, city Controller Wendy Greuel said today in a release in which she requested a $90 million transfer of reserve funds to pay bills.
“The question I have been asked most often during the budget crisis is, ‘When will the city run out of money?” Greuel said in the e-mailed release. “Unfortunately, we finally have the answer.”
Greuel, 48, said in the release that the city might not be able to make payroll. She asked Mayor Antonio Villaraigosa and the City Council to release $90 million from reserve funds to meet what she described as “an urgent cash need.” The controller’s financial reporting division estimated that the city would need $90 million to ensure solvency through the fiscal year that ends June 30, according to Golombek.
If you want to know what life in the Third World is like, just ask Lisa Pack, an administrative assistant who works in the roads and transportation department in Jefferson County, Alabama. Pack got rudely introduced to life in post-crisis America last August, when word came down that she and 1,000 of her fellow public employees would have to take a little unpaid vacation for a while. The county, it turned out, was more than $5 billion in debt — meaning that courthouses, jails and sheriff’s precincts had to be closed so that Wall Street banks could be paid.
As public services in and around Birmingham were stripped to the bone, Pack struggled to support her family on a weekly unemployment check of $260. Nearly a fourth of that went to pay for her health insurance, which the county no longer covered. She also fielded calls from laid-off co-workers who had it even tougher. “I’d be on the phone sometimes until two in the morning,” she says. “I had to talk more than one person out of suicide. For some of the men supporting families, it was so hard — foreclosure, bankruptcy. I’d go to bed at night, and I’d be in tears.”
…but don’t worry about it. The economy is fine.
Russian Prime Minister Vladimir Putin played down Greece’s economic woes on Tuesday, telling his visiting Greek counterpart that the United States were no better than Greece in handling its debt and fiscal deficit.
I’m no fan of Putin, but he’s calling it like it is on this one.
Some people think the experience of the Weimar Republic in Germany in the interwar years, when paper money was made so worthless by the central bank that the bills were literally used as fuel to heat homes, is entirely impossible in the United States.
We think we are immune from such a calamity, but we are not.
-Ron Paul (End the Fed)
In early-2009, the governor of the Zimbabwe Reserve Bank indicated he felt his actions in printing money were vindicated by the recent actions of the U.S. Federal Reserve. If the U.S. went through a hyperinflation like that of Zimbabwe’s, total U.S. federal debt and obligations (roughly $75 trillion with unfunded liabilities) could be paid off for much less than a current penny.
The problem for the U.S. now (and for the future) is that not only can exponential increases in debt no longer be financed by U.S. consumers, but this same limitation also applies to all three levels of U.S. government. For the state and municipal levels of government, this means a continuing stream of lay-offs for years to come – followed by many more years of austerity. For the federal government, it has already resulted in large portions of the current deficit being “monetized” (i.e. printing money to pretend to “pay its bills”).
This is an excellent article from Jeff Nielson that’s well worth at least one read through – and some pondering on top.